ECB expected to hold rates as more Trump tariffs loom
The pace of consumer price rises has settled around the central bank's two-percent target, having soared to double digit highs in the wake of the coronavirus pandemic and Russia's full scale invasion of Ukraine.
But the relatively more favourable monetary policy conditions look fragile with an August 1 deadline for the possible imposition of punitive tariffs on European exports into the United States set by Trump.
With Washington and Brussels still in talks over a possible tariff deal, ECB rate-setters would want "more clarity... before considering any further adjustment to monetary policy", UniCredit analysts said.
A pause would give policymakers the summer to see whether Trump follows through with his threat to slap EU exports with a flat 30-percent tariff, in addition to existing levies on cars, steel and aluminium.
Higher barriers to trade risk delivering a fresh blow to the eurozone economy, and encourage the ECB to contemplate further rate cuts.
-'Powder dry'-
After seven straight cuts and eight in total since June last year, the ECB has brought its benchmark deposit rate down to two percent from its peak of four percent in the midst of the inflation wave.
"Neither the economic data nor latest data regarding price dynamics demand an immediate response from the ECB," according to Dirk Schumacher, chief economist at German public lender KfW.
Eurozone inflation came in at exactly two percent in June and economic indicators including rising factory output have encouraged more optimism about the health of the economy.
The ECB would also want to "keep some powder dry for the case of emergency" if Trump were to apply harsh tariffs, Berenberg analyst Felix Schmidt said.
"A further escalation in the trade dispute would have a significant negative impact on the eurozone economy," leading to more rate cuts, Schmidt said.
The increased strength of the euro against the dollar as a result of tariff uncertainty could also encourage policymakers to further soften the ECB's monetary policy stance.
The euro has surged almost 14 percent against the dollar since the start of the year, boosted by investor moves to dump US assets in the face of Trump's impetuous policymaking and attacks on the US Federal Reserve.
-Strong euro-
A stronger euro would make imports cheaper and further suppress inflation. The ECB is already predicting the indicator to dip to 1.6 percent in 2026 before returning to target in 2027.
Investors will be listening closely to ECB President Christine Lagarde's comments in Frankfurt at 2:45 pm (1245 GMT) for indications of what could come next.
Lagarde dropped a strong hint that the ECB's cutting cycle was "getting to the end" at the last meeting in June, while stressing a data-dependent and meeting-by-meeting approach in the face of uncertainty.
If an expected pause is confirmed Thursday, observers will turn their attention to how ECB thinking is developing ahead of its next gathering in September.
"A relatively quiet July meeting could feature some heightened scrutiny on how comfortable policymakers would be with another euro rally," according to ING bank analyst Carsten Brzeski said.
Worries over currency fluctuations "may not make their way to official communication, but could help tilt the balance to a more dovish overall tone," Brzeski said.
© 2025 AFP
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Euronews
2 hours ago
- Euronews
Investors pivot to UK stocks as US faces continued instability
After years of political turbulence in Westminster and post‑Brexit economic whiplash that drove capital away, the current US policy chaos has propelled global investors back to London, turning the UK into 2025's unlikely safe haven. 'Certain investors believe the US is a much higher-risk investment prospect under Trump and they've taken money off the table and reallocated to other parts of the world including the UK," according to Dan Coatsworth, investment analyst at AJ Bell. "This is a dramatic shift in thinking, given that the US has been a top place to make money for years." US President Donald Trump's administration has spent most of 2025 imposing, scrapping and re-imposing tariffs on its biggest trading partners and allies. "Political stability since last summer's general election, along with the UK being the first to strike a trade agreement with the US under the Trump administration, have prompted certain overseas investors to think again about the UK's situation and prospects," Coatsworth continued. The FTSE 100 Index broke the 9,000 valuation record in mid July, taking it nine times above its baseline of 1,000. The index's previous major milestone came in February 2023, when it briefly pushed past 8,000. US dollar in freefall amid fights with the Fed In May, Moody's downgraded the United States' credit rating from AAA to AA1, marking the first time in over a century that the US no longer held a triple-A rating from any major credit agency. Last week, footage of Federal Reserve Chair Jerome Powell went viral as he stood next to Trump during a visit to the Fed building, with the bank chief shaking his head in apparent disagreement. Trump's criticism of Powell — who is arguably the most powerful guardian of the dollar's value — has aggravated the currency's steady slide since the new administration took office in January. 'Dollar weakness will have spurred UK investors to look closer to home for opportunities. A weaker dollar versus the pound makes US assets less attractive," explained Coatsworth. Although the greenback has risen in recent days, the dollar index is still down almost 9% in the year to date. Defence is a money magnet Trump's departure from US foreign policy norms, for instance by demanding that Europe pay more for NATO while sending positive signals to Russia, has shocked leaders across the continent, undermining global security. Interest in government defence spending across the EU and the UK has risen at a record pace since the Cold War, with some governments fast‑tracking multibillion‑euro deals for the procurement of missiles, drones and cybersecurity systems. This environment has made Europe's defence contractors prime targets for fresh capital as investors look for assets that can outpace geopolitical shockwaves. Fresnillo, Babcock and Rolls-Royce, all either defence contractors or working on defence-adjacent projects, are the best-performing FTSE stocks so far in 2025. 'The UK stock market has a wealth of defence contractors which have attracted investor interest against a backdrop of increased government spending on areas like cybersecurity and military forces," Coatsworth added. A bargain for investors? 'Valuation is another reason the UK has functioned as a magnet for people switching out of US markets," said Coatsworth, as FTSE stocks are cheaper than US alternatives. 'American shares are expensive when you look at popular valuation metrics. For example, the S&P 500 index trades on 22.2 times next 12 months' earnings ... In contrast, the FTSE 100 trades on a mere 12.6 times forward earnings."
Euronews
2 hours ago
- Euronews
EU and US spin conflicting versions of trade deal
The trade deal between the European Union and the United States is off to a rocky start. The preliminary agreement, announced at the end of a face-to-face meeting of Ursula von der Leyen and Donald Trump in Scotland, has prompted a massive wave of criticism over its heavily lopsided nature in favour of American interests. On Monday, the European Commission spent the day briefing journalists to defend the deal as an anchor of stability and predictability in troubled times, a pill that is hard to swallow but necessary to avoid a havoc-wreaking tariff war across the Atlantic. Then the story took a new twist when the White House published a fact sheet about the agreement with multiple claims that mismatched or downright contradicted the version of events presented by the Commission just hours earlier. On Tuesday, Brussels replied with its own statement, sowing further confusion. Euronews takes a closer look at the clash of narratives. Pharmaceuticals What the White House says: Pharmaceuticals will be subject to the across-the-board 15% tariff that will apply to the majority of EU-made products as of 1 August. What the Commission says: Pharmaceuticals will, for the time being, be spared from the 15% tariff and instead remain under the current 0% rate until the Trump administration completes its Section 232 investigation into the sector. "There will be no tariffs on pharmaceuticals this Friday," a senior official said. While the US' Section 232 investigation could lead to a tailor-made, painfully high tariff, as was the case for steel and aluminium, the Commission expects the 15% will act as the maximum ceiling, blocking the imposition of any additional duties on top. "I believe that this commitment will be honoured and respected in this case," said Maroš Šefčovič, the European Commissioner for Trade. Energy purchases What the White House says: The EU will "double down" on its purchases of American energy, buying $750 billions' worth by the end of Trump's second term. In practice, this will amount to $250 billion each year. What the Commission says: The Commission, which negotiated the deal on behalf of all 27 member states, lacks the competence to determine the amount, the type and the origin of the energy supplies acquired by governments and companies. Therefore it cannot legally bind the bloc to the goal of spending $750 billion on American energy. The announced number is an indication based on the needs the EU will face in the coming years to phase out the consumption of Russian fossil fuels, an arduous effort that has boosted the role played by American liquefied natural gas (LNG). "It's important to remember that the European Commission is not buying any of these commodities and neither is the US government selling any of this," a Commission spokesperson said. "These are all commercial decisions made by the companies: those companies that buy and those companies that sell." The spokesperson noted the annual figure of $250 billion would be all-encompassing, covering ordinary purchases of American fuel, which currently range from $92 to $100 billion, as well as technology and investments. Investment pledge What the White House says: The EU will invest $600 billion in the US by the end of Trump's second term. "This new investment is in addition to the over $100 billion (that) EU companies already invest in the United States every year," the fact sheet says. What the Commission says: As with the energy purchases, the Commission is unable to design and implement investments on behalf of the private sector. The $600 billion is another indication based on the executive's contacts with industry. "It's not something the EU, as a public authority, can guarantee – it's something based on the intention of private companies," a senior official said. The aggregated $600 billion figure might shrink once the impact of the EU-US trade deal, which is disadvantageous for the bloc, begins to take effect. Despite the uncertainty, the White House is portraying the energy and investment pledges as a fait accompli. Weaponry What the White House says: The EU "agreed to purchase significant amounts of US military equipment", the fact sheet says, without citing any financial figure. What the Commission says: Absolutely not. The Commission has resolutely denied making any pledge to ramp up purchases of American-made weaponry. This is a highly sensitive matter for Brussels, given that defence is a strictly national competence that member states zealously guard. While Ursula von der Leyen has promoted ambitious initiatives to boost defence spending, the final decision of how this money is spent – or if it is spent at all – rests exclusively in the hands of capitals. "Arms procurement is not a matter for the Commission," the senior official said. "I think this was more an expression of expectation on the part of President Trump that the increased defence expenditure (in Europe) would benefit US defence companies because of the quality of the US defence equipment, but it was not calculated in any way in the figures we talked about." Steel and aluminium What the White House says: The sectoral tariffs on steel and aluminium will remain "unchanged", meaning the EU will continue to pay the 50% rate imposed by the Trump administration as a result of the Section 232 investigation. "This new tariff regime will generate tens of billions of dollars in revenue annually and help to close the longstanding trade imbalance between the United States and Europe by encouraging local sourcing, reshoring production and ensuring that foreign producers contribute their fair share to the American economy," the fact sheet says. What the Commission says: The EU insists the deal will establish a specific quota system to settle the long-standing dispute over steel and aluminium. Under the system, the volume of EU exports that fall within the quota will benefit from a lower tariff rate. Once the quota is exceeded, the 50% will apply, senior officials explained. Due to the embryonic state of the agreement, the Commission is still unable to provide technical details on how the quota will work in practice. Its press release simply says the system will be based on "historic levels" of steel and aluminium exports. The White House's fact sheet mentions a commitment to provide "meaningful quotas" for several products, but only in the context of US products bound for the EU market, not vice versa, as the Commission has stated. Digital and agricultural barriers What the White House says: As part of the new deal, the US and the EU will address "non-tariff barriers" in food and agricultural trade, "including streamlining requirements for sanitary certificates for US pork and dairy products". The two sides will also address "unjustified digital barriers", the White House adds, with commitments to maintain network usage fees and zero duties on electronic transmissions. What the Commission says: Yes, the EU is willing to streamline sanitary certificates, which are forms, and discuss network fees, but that's as far as it goes. The bloc will retain its "right to regulate autonomously" at all stages, said Olof Gill, the Commission's spokesperson for trade, in reply to the White House's claims. "We're not moving on our regulations. We're not moving on our rules. We're not moving on the system that we built up over many decades that our citizens trust," Gill said. "That will not form part of this agreement with the US." Throughout the negotiations that preceded the deal, US officials consistently denounced the bloc's regulatory framework, calling for the abolition of its digital rules, food safety standards and value-added tax (VAT) as top irritants.
France 24
3 hours ago
- France 24
European pharma industry still worried about tariffs
The agreement sets a 15 percent tariff on most EU goods imported into the United States, but Washington could still take steps that would see medicines face a higher levy. The EFPIA trade association for the European pharmaceutical industry said it was monitoring announcements on the details of the deal "as key implications for the pharmaceutical sector remain uncertain". An EU fact sheet on the trade deal said the 15 percent rate ceiling would also apply to any potential future tariffs on pharmaceuticals, including Section 232 tariffs meant to protect US national security. Most EU pharmaceuticals currently enter the United States without a tariff, and the EU said this would remain the case until the US decides on whether to impose additional tariffs based on Section 232. Earlier this month Trump threatened tariffs of up to 200 percent on pharmaceuticals in as soon as one year if foreign firms did not begin to manufacture more in the United States. In the spring, in the face of these risks, large European pharmaceutical groups including Roche, Novartis and Sanofi announced more than $200 billion of additional investments in the United States, the world's largest drug market. But US pharmaceutical firms have also set up shop in Ireland, attracted by its low corporate tax rate. The sector employs about 50,000 people and accounted for nearly half of Irish exports last year, reaching 100 billion euros ($116 billion). The EFPIA criticised tariffs as a policy instrument. "Tariffs on medicines are a blunt instrument that will disrupt supply chains, impact on investment in research and development, and ultimately harm patient access to medicines on both sides of the Atlantic," it said.
